Over - depreciated assets

Question

Hi - I have two questions. First, back in 10/31/19, we changed the estimated lives of all assets that had either 30 years or 27.5 years to 40 years in the tax books. At that time, we made the change using the "current thru date" not realizing that the new depreciation would cause our assets to be over depreciated. We now know that if we had used the "RV" method the assets would be depreciated over the remainder of the new life. Is there a way to correct the over depreciation now? We also have to make this adjustment in bulk because of the volume of assets that have to be changed. If we are able to fix the depreciation using the RV method, will the acquired value that we see on the reports change? 
 My question is relating that the change, we had an accounting firm make the changes to our lives outside of the system in order to file the 2018 tax returns. Can we change the 1/1/2019 prior accumulated deprecation to match what the accounting firm determined should be the accumulated depreciation? Not sure if it is possible to force this number?

Bob Mc · Answer

Hi, Christin, 
 I counted 4 questions. And I will take these one at a time. But before I do so, let me first address something you wrote in your introductory comments. 
 You wrote that you changed the estimated life to 40 years on some of your assets last year. Forty years is not a GDS recovery period, but it is an ADS recovery period that applies to real property. Though you did not specifically mention ADS, this is a reasonable inference to draw from what you wrote. Perhaps, your EBITDA is not as high as you would like? And so, the accounting firm you hired advised you to switch over from GDS to ADS in order to stretch out your deductions over a longer period? I really don&rsquo;t know all of the facts in your situation, Christin, but my mind is merely fermenting on some of the things you revealed in your post. 
 #1. Is there a way to correct the over depreciation now? 
 The short answer is yes. However, you need to recognize that RV is not a Tax book method. You shared that you only learned about the RV method sometime over the past year. My guess is that you learned about it in the context of financial reporting because that is where it would be applied. 
 But here is the good news. Two new tax approved methods were added to the Sage software in the 2019 version. Therefore, if you are using the latest version, you can take advantage of these methods which were derived from the RV. And from what you have posted, I think you are interested in using the RM method. This is essentially an RV method but intended to apply to real property which uses a mid-month averaging convention. Furthermore, this is an approved ADS method. Therefore, the expense calculated on assets depreciated with the RM will correctly report to Part II of your IRS Form 4562. 
 Using the RM will correct the over-depreciation that you insightfully recognized would result if the method were not otherwise changed. But there is something I should caution you about. If you took any bonus depreciation under Section 168, that amount will be erased when you change over to the RM method. Therefore, I recommend that before you make the change, note the amount, if any, identified in the 168 Allowance Amount field which is found among your blue depreciation calculations. Then, after making the change, add that 168 figure to the amount that will appear in the Beginning Accum field after making the change. In other words, this will require a manual edit. 
 #2. If . . . will the acquired value that we see on the reports change? 
 No. When you change the depreciation method, the acquisition value remains the same on reports. 
 #3. Can we change the 1/1/2019 prior accumulated depreciation to match what the accounting firm determined should be the accumulated depreciation? Not sure if it is possible to force this number? 
 If my aim is true, I&rsquo;ll try to answer both of these questions in one shot. Yes, you can force a set of numbers, however they may have been crunched, onto the asset records. You can use the accumulated depreciation figures that your CPA produced as of 1/1/19, or whenever. The solution is to use the Beginning fields. 
 What I would do, Christin, is inactivate the old assets and build new assets to replace them. But to manually fill in the values into the Beginning fields for a lot of assets may be a very time-consuming project. Instead of doing it yourself, you might prefer to obtain help from our Professional Services team who can do this work for you albeit at a negotiated fee. Call 1-800-368-2405, if interested in pursuing that option.

Delray · Answer

Hello Christin, 
 No, you cannot perform an import and change existing book information, but in the 2019.1 and higher, there is a Bulk Edit feature of the Method and Life available: Please See How to perform Bulk Edit of Critical Depreciation Fields for the details. 
 I was curious about the reason for the initial change, since it sounds like you were looking to comply with some recent ADS changes for which there are details in Section 250 Compliance: Creating a New ADS Depreciation Book which may come in handy. 
 ~Delray

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